Yaz Romahi, portfolio manager and CIO for Quantitative Beta Strategies, explains his approach to security selection and the benefits of multi-factor screening.

How would you summarize your approach to security selection?

There are a number of sources of equity returns beyond growth itself. These include factor exposures such as value, size, momentum and quality (or low volatility, which is closely related). When creating a diversified factor portfolio, we seek to build up the constituents with exposure to these sources of return.

Our bottom-up stock filter scores each company based on a combination of these return factors to determine whether it is included in the index. These factors provide access to a broader, more diversifying source of equity returns. The low correlation of these factors to one another complements our risk-based diversification.

How do you determine the weighting that is applied to each factor in the screening process? Do they get equal weighting at all times?

They tend to be fairly stable and consistent. This helps us to manage risk. Although the performance of individual factors can often be indicated by a number of features of the market, we believe maintaining broad factor diversification allows us to balance our allocation and reduce volatility over the long term.

Can you describe the interplay between factors?

While the core value proposition of a factor in a multi-factor framework is its low correlation to the market and to other factors, there are some factors that pair especially nicely. Value and momentum are one such example. When a stock gets more expensive, its valuation metrics typically deteriorate at exactly the time when its price chart looks most appealing from a momentum point of view. This would lead not only to offsetting the need to trade, but also to some negative correlation between the factors, creating a smoother ride in the portfolio. Quality and size are another such pairing. The highest-quality (and lower-volatility) stocks are often the larger, blue-chip names.

How often do you refine your methodology?

Our ETFs are passively managed to track indices that we have designed in partnership with FTSE/Russell. The principals by which the indices are constructed are not simply a response to a particular investment fad, but the time-tested result of decades of research and insights. We retain the flexibility to adjust this investment process as we find ways to refine our implementation. One example of such a change is in relation to the timing of rebalancing in our international product line—these launched in 2014 with a monthly rebalance schedule, but we reverted to a quarterly rebalance once we had conviction that this slower pace of trading could still deliver the factor exposures—and returns—intended.

Looking for a less volatile way to participate in international equity markets?

For investors seeking a smoother ride in international equity markets, JPMorgan Diversified Return International Equity ETF (JPIN) tracks an index whose methodology is designed to capture market upside while providing less volatility in down markets compared to a market cap-weighted index.

Call 1-844-4JPM-ETF or visit www.jpmorganetfs.com to obtain a prospectus. Carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read them carefully before investing.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purpose. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.

RISK SUMMARY

• Investing involves risk, including possible loss of principal. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. Shares may only be sold or redeemed directly from a fund by Authorized Participants, in very large creation/redemption units. For all products, brokerage commissions will reduce returns.

• International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations.

• Narrowly focused investments typically exhibit higher volatility.

• Emerging markets involve heightened risks related to the same factors as well as increased volatility and decreased trading volume.

• The fund uses derivatives, which may be riskier than other types of investments and may increase the volatility of a fund.

• A fund may not track the return of its underlying index for a number of reasons, such operating expenses incurred by a fund that are not applicable to an index, and the time difference between calculating the value of an index and the net asset value of a fund.

• There is no guarantee the fund will meet its investment objective.

• Diversification may not protect against market loss.

Opinions and statements of market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These views described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Past performance is no guarantee of future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. ETF shares are bought and sold throughout the day on an exchange at market price (not NAV) through a brokerage account, and are not individually redeemed from the fund. Shares may only be redeemed directly from a fund by Authorized Participants, in very large creation/redemption units. For all products, brokerage commissions will reduce returns.

J.P. Morgan Asset Management is the marketing name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA/SIPC.

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